Northwestern Energy Group, Inc. · NASDAQ:NWE
Northwestern Energy — KeyBanc NDR April 2021
59 slides from Northwestern Energy's conference presentation, Apr 28, 2021
Slide 1: Investor Update | KeyBanc NDR - April 28, 2021
Thompson Falls Hydroelectric Facility Investor Update | KeyBanc NDR - April 28, 2021 8-K’ed on April 28, 2021
Slide 2: Forward Looking Statements
2 Forward Looking Statements Forward Looking Statements Boulder RiverO’Dell Creek - in Montana Madison River Valley - Montana During the course of this presentation, there will be forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Refor
Slide 3: NorthWestern Energy Value Proposition
3 NorthWestern Energy Value Proposition A pure electric and natural gas utility serving as stewards of critical energy infrastructure that provides essential services to a broad service territory spanning across Montana, South Dakota, Nebraska and Yellowstone National Park. A Strong Financial Founda
Slide 4: NWE - An Investment for the Long Term
4 NWE - An Investment for the Long Term • 100% pure electric & natural gas utility business Black Eagle dam Pure Electric & with over 100 years of operating history Gas Utility • Solid economic indicators in service territory • Diverse electric supply portfolio ~65% hydro, wind & solar • Residential
Slide 5: About NorthWestern
5 About NorthWestern South Dakota Operations Electric 63,900 customers 3,622 miles – transmission & distribution lines 411 MW nameplate owned power generation Natural Gas 48,000 customers 1,766 miles of transmission and distribution pipeline Montana Operations Electric 384,700 customers 24,877 miles
Slide 6: A Diversified Electric and Gas Utility
6 A Diversified Electric and Gas Utility (1) (1) NorthWestern’s ‘80/20’ rules: Approximately 80% Electric and 80% Montana. Over $4.0 billion of rate base investment to serve our customers Data as reported in our 2020 10-K (1) Gross Margin, defined as revenues less cost of sales, is a non-GAAP Measur
Slide 7: Highly Carbon-Free Supply Portfolio
7 Highly Carbon-Free Supply Portfolio MT NWE Contracted energy from Colstrip Energy Limited Partners (CELP), Yellowstone Energy Limited Partners (YELP) as well as a majority of the contracted wind, hydro and solar are federally mandated Qualifying Facilities, as defined under the Public Utility Regu
Slide 8: Strong Utility Foundation
8 Strong Utility Foundation Solid and improving JD Power Overall Customer Satisfaction Scores Residential electric and natural gas rates below national average Solid electric system reliability Low gas leaks per mile – just outside 1st quartile
Slide 9: Solid Economic Indicators
9 Solid Economic Indicators Source: NorthWestern customer growth - 2008-2016 Forms 10-K Unemployment Rate: US Department of Labor via SNL Database 2/21/17 Electric: EEI Statistical Yearbook (published December 2015, table 7.2) Natural Gas: EIA.gov (Data table "Number of Natural Gas Consumers") Sourc
Slide 10: A History of Growth
10 A History of Growth $3.30-$3.50 $3.10 - $3.30 $2.60$3.20-$3.40 - $2.75 2011-2020 CAGR’s: GAAP EPS: 2.1% - Non-GAAP EPS: 3.7% - Dividend: 5.8% See appendix for “Non-GAAP Financial Measures”
Slide 11: Track Record of Delivering Results
11 Track Record of Delivering Results * Peer Group: ALE, AVA, BKH, IDA, MGEE, NWN, OGE, OGS, OTTR, PNM, POR & SR Return on Equity on Non- GAAP Earnings within 8.3% - 10.5% band over the last 10 years with average of 9.4%. Total Shareholder Return is in line or better than our 12 peer average for the
Slide 12: Investment for Our Customers' Benefit
12 Investment for Our Customers’ Benefit Over the past decade we have been reintegrating our Montana energy supply portfolio and making additional investments across our entire service territory to enhance system safety, reliability and capacity. We have made these enhancements with minimal impact t
Slide 13: Net Operating Losses & Effective Tax Rate
13 Net Operating Losses & Effective Tax Rate Cash Taxes: We anticipate NOLs to be available into 2021 with production tax and other credits to largely offset federal cash tax obligations into 2023. Effective Tax Rate: We anticipate the effective tax rate (ETR) for 2021 to be approximately (2.5%) to
Slide 14: Balance Sheet Strength and Liquidity
14 Balance Sheet Strength and Liquidity Investment grade credit ratings (placed on negative outlook by Moody’s on March 12, 2021), liquidity in excess of $100 million target, debt to cap within our targeted 50%-55% range and no long-term debt maturities until 2023. *Liquidity target temporarily incr
Slide 15: Earnings Growth
15 Earnings Growth $3.30-$3.45 $2.60 - $2.75 Non-GAAP Adjusted EPS Growth Averaged 4.3% from 2013 - 2020 NorthWestern affirms its 2021 earnings guidance range of $3.40 to $3.60 per diluted share based upon, but not limited to, the following major assumptions and expectations: • COVID-19 related redu
Slide 16: 2020 Non-GAAP to 2021 EPS Bridge
16 2020 Non-GAAP to 2021 EPS Bridge We anticipate narrowing the $3.30-$3.45 20 cent guidance $2.60 -range $2.75 (to the standard 15 cent range) in the 2nd or 3rd quarter when we have a better sense Covid-19 impacts. Non-GAAP 2020 to 2021 midpoint EPS growth rate of 4.5%. $2.48 annualized dividend is
Slide 17: Maintaining Capital Investment Forecast
17 Maintaining Capital Investment Forecast • $2.1 billion of total capital investment over the five year period. • We expect to finance this capital with a combination of cash flows from operations, first mortgage bonds and equity issuances. We anticipate initiating a $200 million At-the-Market (ATM
Slide 18: Generation Portfolio Update
18 Generation Portfolio Update Montana • Initial bids for the January 2020 RFP were received in July 2020. Bid 60 MW of flexible capacity underway in Huron, SD submissions were evaluated by an independent party with the following portfolio of projects selected: • Laurel Generation Station - Construc
Slide 19: Transmission System Update
19 Transmission System Update Electric Transmission: • Continue planned retirements of generating resources in Montana in conjunction with increasing demand is placing more stress on the transmission system (two record peaks in the last three seasons). As a result, we are experiencing less available
Slide 20: Distribution Grid Update
20 Distribution Grid Update Accomplishments 5 Year Projects Grid of the Future •Emergency System Management System Efficiencies New Technology (EMS) •ADMS Enhancements •EV Charging •Mobile Work Force •Fault Location, •Micro Management Management (MWM) Isolation and Service System (MGMS) •Advanced Di
Slide 21: February Cold Weather Event
21 February Cold Weather Event • In February 2021, a prolonged cold spell resulted in record winter peak demand for electricity and natural gas. In our SD & NE service territories, natural gas costs for the month of February 2021 exceeded the total cost for all of 2020. • We recorded a regulatory as
Slide 22: February Cold Weather Event (Montana)
22 February Cold Weather Event (Montana) Portfolio Resource Portfolio Resource Production (Megawatts) (Megawatt Hours) Resource Adequacy Requirement Wind (455MW) Purchase Price NWE Load Solar (17MW) Accredited Capacity of current portfolio Coal and Natural Gas (511MW) Hydro (484MW) The chart illustr
Slide 23: MegaWatts (MW)
• • • MegaWatts (MW) 0 -900 -800 -700 -600 -500 -400 -300 -200 -100 2/10/21 0:00 2/10/21 3:00 2/10/21 6:00 2/10/21 9:00 2/10/21 12:00 2/10/21 15:00 2/10/21 18:00 2/10/21 21:00 2/11/21 0:00 2/11/21 3:00 2/11/21 6:00 2/11/21 9:00 2/11/21 12:00 2/11/21 15:00 2/11/21 18:00 2/11/21 21:00 2/12/21 0:00 2/1
Slide 24: Looking Forward (Regulatory)
24 Looking Forward (Regulatory) • We do not expect to make general rate case filings in any of our regulatory jurisdictions during 2021. We have made or anticipate making several other regulatory filings, primarily in our Montana jurisdiction, including: • An April 15, 2021 filing requesting to dela
Slide 25: ESG Advances
25 ESG Advances • NorthWestern has a new Environmental, Social and Governance landing page. The new page: • Consolidates existing ESG information; • Includes disclosures of 20 new and existing policies and standards necessary for a best-practices ESG program; and • Includes a new, easy reference, Su
Slide 26: ESG Publications
26 ESG Publications Environmental Social Governance BRIGHT magazine https://www.northwesternenergy.com/docs/default- Annual Report Environmental Report source/brightmagazine/bright_magazine_vol1_community_final.pdf http://www.northwesternenergy.com/our- company/investor-relations/annual-reports http
Slide 27: ESG - Environmental
27 ESG - Environmental NWE Montana & South Dakota combined Based upon 2020 MWH’s of owned and long-term contracted resources. 65% of NorthWestern Energy’s 2020 Electric Generation Portfolio Delivered was Carbon-Free (based on megawatt hours) Mystic Dam Beethoven Wind Farm 57% Carbon Free Nameplate P
Slide 28: ESG - Social
28 ESG - Social Community Customers Employees $2.3 Billion Economic Output in Typical Residential Bills Lower than Safety Culture Transformation 2020 ($2.013B in Montana & National Average $249M in SD/NE) Over $5 million Donations, Sponsorships, Economic Development, Scholarship Funding, Public Recr
Slide 29: ESG - Governance
29 ESG - Governance 5th Best Score Among 50 Publicly Traded North American Diverse Leadership Board of Directors Executive Team Utility and Power Companies by Moody’s Investment Services on Best Governance Practices Corporate Governance What We Do: • Annual election of all directors. • Majority vote
Slide 30: How we're going to get there
30 Our Carbon Reduction Vision for NorthWestern Energy in Montana 90% carbon reduction by 2045 NorthWestern Energy commits to reduce the carbon intensity of our electric energy portfolio for Montana 90% by 2045.* * As compared with our 2010 carbon intensity as a baseline Already over 60% carbon free
Slide 31: Conclusion
31 Conclusion Best Attractive Pure Strong Solid Utility Practices Future Electric & Earnings & Foundation Corporate Growth Gas Utility Cash Flows Governance Prospects
Slide 32: Powering a bright future
Upetivering a bright future
Slide 33: NWE Capacity as compared to Regional Peers
Appendix 33 NWE Capacity as compared to Regional Peers NWE’s capacity deficit exposes our customers to greater market exposure (price and availability) than any of our regional peers.
Slide 34: Significant Capacity Deficit in Montana
Appendix 34 Significant Capacity Deficit in Montana NorthWestern Energy’s current resources provide about 755 MW of peaking capacity, which is the energy available during periods of our customers’ highest demand. An additional 645 MW of peaking capacity must currently be purchased from the market to
Slide 35: Accredited Capacity Contribution in Montana
Appendix 35 Accredited Capacity Contribution in Montana Accredited Capacity Contribution is the ability of each resource fuel-type to contribute to meet demand during On a megawatt basis, wind generation peak energy usage by customers. comprises a very significant portion of Accredited Capacity Cont
Slide 36: Significant Capacity Retirements in the Pacific NW
Appendix 36 Significant Capacity Retirements in the Pacific NW Retired ahead of schedule (Jan ‘20) Planned retirements in the Pacific Northwest region exceed 3,600 MW and the Northwest Power and Conservation Council forecasts regional capacity shortfalls as early as 2021. NorthWestern’s continued re
Slide 37: Existing Colstrip Ownership
Appendix 37 Existing Colstrip Ownership Colstrip Power Plant Colstrip Transmission System Facility Owner (%) Unit 1 Unit 2 Unit 3 Unit 4 AVISTA Corporation - - 15% 15% NorthWestern Energy - - - 30% PacifiCorp - - 10% 10% Portland General - - 20% 20% Puget Sound Energy 50% 50% 25% 25% Talen Energy 50
Slide 38: Timeline of Montana Generation Portfolio
Appendix 38 Timeline of Montana Generation Portfolio Owned and Long-Term Resource Portfolio Timeline Since 2011, we have added over 775 MW of generation, both owned and long- term contract, to our generation portfolio, all of which is from carbon-free resources.
Slide 39: Comparison of Installed Capacity
Appendix 39 Comparison of Installed Capacity Comparison of Installed Capacity (MW) - Dispatchability and Carbon Emitting California NorthWestern Energy (Montana) MW Percent MW Percent 2019 of Total Dispatchable Non-Carbon 2019 QF Adds Proforma 2021 of Total Dispatchable Non-Carbon Coal / Coke 91 0.1
Slide 40: Summary Financial Results (First Quarter)
Appendix 40 Summary Financial Results (First Quarter) (1) (1) Gross Margin, defined as revenues less cost of sales, is a non-GAAP Measure See appendix for additional disclosure.
Slide 41: Gross Margin (First Quarter)
Appendix 41 Gross Margin (First Quarter) (dollars in millions) Three Months Ended March 31, 2021 2020 Variance(1) Electric $ 189.9 $ 180.8 $ 9.1 5.0% Natural Gas 66.4 63.2 3.2 5.1% (1) Total Gross Margin (1) $ 256.3 $ 244.0 $ 12.3 5.0% Increase in gross margin due to the following factors: (1) Gross
Slide 42: Weather (First Quarter)
Appendix 42 Weather (First Quarter) Even with the February cold-snap, we experienced a warmer first quarter as compared to normal, which contributed approximately $1.3M pretax gross margin detriment but a $2.7M pretax benefit as compared to first quarter 2020. 42
Slide 43: Operating Expenses (First Quarter)
Appendix 43 Operating Expenses (First Quarter) (dollars in millions) Three Months Ended March 31, 2021 2020 Variance Operating, general & admin. $ 80.9 $ 79.0 $ 1.9 2.4% Property and other taxes 47.5 44.5 3.0 6.7% Depreciation and depletion 47.0 45.3 1.7 3.8% Operating Expenses $ 175.4 $ 168.8 $ 6.6
Slide 44: Operating to Net Income (First Quarter)
Appendix 44 Operating to Net Income (First Quarter) (dollars in millions) Three Months Ended March 31, 2021 2020 Variance Operating Income $ 80.9 $ 75.2 $ 5.7 7.6% Interest Expense (23.5) (24.3) 0.8 3.3% Other Income / (Expense) 5.6 (2.0) 7.6 380.0% Income Before Taxes 63.1 48.9 14.2 29.0% Income Ta
Slide 45: Income Tax Reconciliation (First Quarter)
Appendix 45 Income Tax Reconciliation (First Quarter) We expect NOLs to be available into 2021 with alternative minimum tax credits and production tax credits to be available into 2023 to reduce cash taxes. Additionally, we anticipate our effective tax rate to reach approximately 10% by 2024.
Slide 46: Balance Sheet
Appendix 46 Balance Sheet Targeted debt to capitalization ratio of 50%-55% 53.6% Debt to Capitalization at March 31, 2021
Slide 47: Cash Flow
Appendix 47 Cash Flow Cash from operating activities decreased by over $92 million primarily due to an $80.9 million increase in market purchases of supply resulting in an under collection of supply costs from customers in the current period due to colder winter weather in February 2021 and a refund
Slide 48: Adjusted Non-GAAP Earnings (First Quarter)
Appendix 48 Adjusted Non-GAAP Earnings (First Quarter) The adjusted non-GAAP measures presented in the table are being shown to reflect significant items that are non- recurring or variance from normal weather, however they should not be considered a substitute for financial results and measures det
Slide 49: Qualified Facility Earnings Adjustment
Appendix 49 Qualified Facility Earnings Adjustment The gain in 2020 for our QF liability was $3.1 million in total, it was comprised of $2.2 million adjustment to the liability and $0.9 million lower actual costs over last 12 months (QF contract year). This $3.1 million benefit is $3.3 million less
Slide 50: Quarterly PCCAM Impacts
Appendix 50 Quarterly PCCAM Impacts In 2017, the Montana legislature revised the statute regarding our recovery of electric supply costs. In response, the MPSC approved a new design for our electric tracker in 2018, effective July 1, 2017. The revised electric tracker, or PCCAM established a baselin
Slide 51: NWE Rate Base and Earnings Profile
Appendix 51 NWE Rate Base and Earnings Profile Data as reported in our 2020 10-K (1) The revenue requirement associated with the FERC regulated portion of Montana electric transmission and ancillary services are included as revenue credits to our MPSC jurisdictional customers. Therefore, we do not s
Slide 52: 2020 System Statistics
Appendix 52 2020 System Statistics (1) (2) Note: Statistics above are as of 12/31/2020 except for electric transmission for others which is 2019 data (1) Nebraska is a natural gas only jurisdiction (2) Dave Gates Generating Station (DGGS) in Montana is a 150 MW nameplate facility but consider it a 1
Slide 53: Experienced & Engaged Board of Directors
Appendix 53 Experienced & Engaged Board of Directors Dana J. Dykhouse Anthony T. Clark Jan R. Horsfall Britt E. Ide • Committees: Human • Committees: Operations • Committees: Governance, • Committees: Governance, Resources (chair), Audit (chair), Audit, Operations Human Resources • Independent • Ind
Slide 54: Strong Executive Team
Appendix 54 Strong Executive Team Robert C. Rowe Brian B. Bird Crystal D. Lail • Chief Executive Officer • President and • Vice President and Chief • Current position since Chief Operating Officer Financial Officer 2008 • Current position since • Current position since 2021 (formerly Chief 2021 (for
Slide 55: Our Commissioners
Appendix 55 Our Commissioners
Slide 56: Non-GAAP Financial Measures (1 of 3)
Appendix 56 Non-GAAP Financial Measures (1 of 3) These materials include financial information prepared in accordance with GAAP, as well as other financial measures, such as Gross Margin and Adjusted Diluted EPS, that are considered “non-GAAP financial measures.” Generally, a non-GAAP financial meas
Slide 57: Non-GAAP Financial Measures (2 of 3)
Appendix 57 Non-GAAP Financial Measures (2 of 3) Disclaimer on Net Operating Net Operating Losses (NOL’s): The expected tax rate and the expected availability of NOLs are subject to significant business, economic, regulatory and competitive uncertainties and contingencies, many of which are beyond t
Slide 58: Non-GAAP Financial Measures (3 of 3)
Appendix 58 Non-GAAP Financial Measures (3 of 3) The data presented in this presentation includes financial information prepared in accordance with GAAP, as well as other Non-GAAP financial measures such as Gross Margin (Revenues less Cost of Sales), Free Cash Flows (Cash flows from operations less
Slide 59: Powering a bright future
Upetivering a bright future